Question

With reference to relevant provisions of the Bill of Exchange Act 1949, discuss the various types of cheque-crossings and their effect.

Answer 1

Answer:-

Sec. 73(1) of the Bills of Exchange Act 1949 defines a cheque as," A cheque is a bill of exchange drawn on a banker payable on demand."

Elements of a valid cheque :

1. It must be an unconditional order in writing.

 The order must be without any conditions or qualifies and made in writing.

 It must be in form of order and not request.

 The word ‘pay’ and not ‘please pay'

2. The cheque must be signed.

 The person who gives the cheque should sign it.

 If no signature, the drawer would not be liable.

3. It is drawn in a banker.

 The drawer must give direction to a particular person, usually the bank. The name and address of the payee is stated on the face of the cheque.

4. The cheque instructed bank to pay money on demand.

 Demand for payment is affected by presenting the cheque to the banker on whom it is drawn.

5. It is drawn for a specified person or in favour of a bearer.

 The order must be a payment to a specified person or to a bearer.

 Bearer is the person who is in possession of the bill or note.

The types of cheque crossing and its effects as per Bill of Exchange Act 1949 can be expained as under:-

A crossed cheque is a cheque that is payable only through a collecting banker and not directly at the counter of the bank. Two parallel transverse lines, with or without any word, are generally drawn on the top left-hand corner of the cheque.

Types of crossing:

Section 76 (1) General crossing: A crossed cheque generally is a cheque that only bears two parallel transverse lines, optionally with the words 'and company' or '& Co.' (or any abbreviation of them) on the face of the cheque, between the lines, usually at the top left corner or at any place in the approximate half (in width) of the cheque. In the UK, the crossing is across the cheque by the person who originally wrote the cheque (the drawer), or it can legitimately be added by the person the cheque is payable to (the payee), or even by the bank that the cheque is being paid into.

Generally-crossed cheques can only be paid into a bank account, so that the beneficiary can be traced.

A crossed cheque on its own does not affect the negotiability of the instrument.

The ways of general crossing are:

Account payee: Adding a crossing to a cheque increases its security in that it cannot be cashed at a bank counter but must be paid into an account in exactly the same name as that which appears on the ‘payee’ line of the cheque (i.e. the person who has received the cheque, who is legally the “payee” and “holder” of the cheque).

Not negotiable: The words 'not negotiable' can be added to a crossing.

Section 76 (2): Restrictive or special crossing: Where some customary instruction is written between the two parallel transverse lines (constituting crossing of cheque) that may result in imposing certain restrictions on the collecting or paying banker, it is called restrictive crossing. The example is "State Bank of India". In these cases, the respective restrictions mandate to pay the cheque through State Bank of India (acting as collecting banker) only.

Way of Special crossing:

Specific bank: A crossing may have the name of a specific banker added between the lines. A cheque with a such a crossing can only be paid into an account at that bank. The beneficiary bank can add an additional crossing to allow another bank, who are acting as their agent in collecting payment on cheques, to be paid the cheque on their behalf.